From the Heartland

The Parties of Special Interests

Is it possible to kill “quasi-corporatism”?

Among the many questions that marked the 2016 election and its result, perhaps the one that dominated was how the U.S. government can best help American consumers, manufacturers, and workers. Merely to ask this question is to invite the artfully drawn entreaties of various pressure groups, well-positioned and -funded, all in search of special treatment.

Witnessing the contest for grants of privilege in his own day, Ludwig von Mises argued that all individuals and interest groups should heed the categorical imperative: No one should treat others as mere means to his ends, instead acting only on those principles that can be given general applicability without contradiction. “The parties of special interests,” he said, “want nothing but to secure special favors for their own members,” failing to recognize if everyone adopts such an approach, a free society disintegrates.

Government-granted special privilege of all kinds is thus directly contrary to the public good, at least as that term is properly understood. Privilege creates a warlike, zero-sum struggle in which monied special interests vie for advantages, allowances, and accommodations, the costs of which are defrayed by that nebulous entity known as the taxpaying public. This system of sanctified, legalized corruption is rather convenient for those special interests, for so widely dispersed are the costs of their subtle parasitism that the resultant drain goes virtually undetected, obscured by more sensational — and, importantly, superficial — partisan bickering.

The United States seems now to have taken up something like what Mises described as “a diet composed of delegates chosen by autonomous corporative bodies or guilds formed by the different branches of trade, industry, and the professions.” Robert Higgs calls it “quasi-corporatism” (elsewhere, “participatory fascism”), arguing that America’s politico-economic system, though it maintains private ownership in name, involves extensive government control and manipulation of the economy. That is, the American system is entirely unlike the genuine free-market system favored by libertarians and classical liberals.

His critics once jokingly dubbed Democrat Scoop Jackson “the Senator from Boeing,” but there is more generally applicable truth in such brickbats than the political class cares to admit. Witness the frantic energy with which progressive Democrats, putative sworn enemies of corrupt corporate power, argued in favor of the Export-Import Bank, a notorious font of corporate welfare. Presented with a real, concrete opportunity to oppose corporate welfare, to put their populist rhetoric into action, “liberal” politicians instead actively shill for it. Perhaps then Americans can be forgiven for wanting to thumb their noses at a decadent, duplicitous establishment.

Political power is always attractive to influential corporations, who aim to use it in a host of ways to impede competition — or preclude it entirely — thus do the unfortunate realities corporate greed reinforce classical liberal arguments for carefully limited government and free markets. The rule of law and unhampered market competition are necessary precisely because politicians and bureaucrats cannot be trusted with any kind of control over the economy. Distant from its subjects, its power and discretion nearly absolute, today’s immense government finds itself above the law, endowed with the illiberal and undemocratic prerogative to apportion privileges.

The U.S. government houses whole institutions dedicated to such privileges, costing taxpayers billions. The Export-Import Bank is one of these.

Founded by an executive order of Franklin D. Roosevelt in 1934, Boeing’s Bank, as it would come to be called, was the brainchild of several foreign policy advisers who sought to steady relations with the Soviets. The Bank would finance — using taxpayer dollars, of course — new trade efforts with Stalin’s Soviet Union, a country assiduously avoided by shrewd private investors fearing communist expropriation. It had been, after all, less than one year since the United States recognized the Soviet Union, establishing diplomatic relations for the first time since the final days of 1917, shortly after the Bolsheviks’ revolution. By definition, every one of the Bank’s deals entails terms that free-market actors would not accept: were private financiers prepared to assume the risks associated with the deals, there would be no need for the Ex-Im Bank, for the federal government to lay taxpayer money on the line.

Export subsidy institutions like Ex-Im are an economically retrograde vestige of mercantilism, the nationalist idea that governments ought to promote exports to strike a favorable balance of trade. But the Bank’s advocates seldom acknowledge the fact bankrolling American exports actually subsidizes foreign countries by benefiting their consumers at the expense of American taxpayers. As the Adam Smith Institute’s Tim Worstall explains, “it is the imports part of trade that makes us richer,” opening to us the argosy of benefits that spring from comparative advantage. Bargainers in the international marketplace, which group includes, in one way or another, all American consumers, understand their own interests better than do government officials; they buy foreign goods when it benefits them, when those goods are better or cheaper than those available elsewhere. If other countries wish to indulge long-exploded mercantilist misconceptions, the U.S. government should enthusiastically let them, rather than looking to match and raise them.

Mercantilism is not an error that must be countered “to avoid ceding ground to mercantilists,” as former Treasury Secretary Lawrence Summers has argued — even as he admitted mercantilism is an authoritarian alternative to “democratic capitalism.” Rather, the bargain prices that result from foreign countries’ subsidies to their exports are a windfall to American consumers; they amount to those countries giving us something for nothing. Quite as they were in Roosevelt’s day, the arguments in Ex-Im’s favor are ultimately political and foreign policy-related, not economic, and even on those terms, they are wrong.

Summers characterizes shuttering Ex-Im as “unilateral disarmament,” but as Worstall points out, it would only make America richer. The Bank is therefore an illustrative example of not just special privilege but unintended consequences. Ostensibly designed to promote U.S. interests by bolstering American businesses, the Bank actually benefits only a handful of mega-corporations at the expense of both consumers and other American businesses.

Promising no special treatment and no panaceas, classical liberalism is in an unenviable position. The Enlightenment ideas of individual rights, private property, and limited government can never stoop to the vote-begging lows of the parties of special interests, ever ready to cast off the hallowed principles of a free society for even the smallest gain for their partisans. The arbitrary power and privilege of the ancien régimewere never fully replaced by the institutions of a free society. Libertarians, classical liberals, and small-government conservatives must continue to speak for them and against an increasingly unprincipled political establishment.